After tax cash flows are 100,000 a year for 5 years. There is no terminal value. The payback period occurs exactly at the end of 3 years. Calculate the internal rate of return, net present value, and profitability index. Use an interest rate of 10%.

After tax cash flows are 100,000 a year for 5 years. There is no terminal value. The payback period occurs exactly at the end of 3 years. Calculate the internal rate of return, net present value, and profitability index. Use an interest rate of 10%.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 15PROB

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Question

After tax cash flows are 100,000 a year for 5 years. There is no terminal value. The payback period occurs exactly at the end of 3 years.

Calculate the internal rate of return, net present value, and profitability index. Use an interest rate of 10%.

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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